Eskom rejects a CPI rise for electricity

JOHANNESBURG - Eskom has poured cold water on calls for consumer price index (CPI) electricity price increases in the next two years, saying such a move would render the struggling power utility financially unsustainable.

Acting chief financial officer Calib Cassim told the National Energy Regulator of South Africa (Nersa) public hearing into Eskom’s application for a 19.9% tariff increase that CPI increases would lead to an average price increase of 4% in the next two years.

“A CPI increase would mean that Eskom is getting R14 billion less than it is receiving this year. Already in this financial year we can see the challenges in terms of our cash flows and liquidity. It will be much more difficult to meet our debt service commitments,” he said.

Cassim was responding to presentations by Business Unity South Africa (Busa) and the Energy Intensive Users Group (Eiug) who have called for a CPI price increase.

Eiug chief executive Xolani Mbanga yesterday said Eskom should receive only CPI increases for the next few years to force it to focus on efficiencies and corporate governance.

Unlikely to reform

Mbanga said Eskom was unlikely to reform and become an efficient entity in the current environment.

“The pricing model is fundamentally flawed in that Eskom assumes that prices must increase, higher than expected sales will realise in an effort to fund expenses instead of focusing on reducing costs and quantifiably increasing efficiencies,” he said.

Cassim said Eskom’s lenders were looking for ability and willingness to meet their interest and capital repayments.

He said Eskom’s debt service costs and operating costs were escalating at a rate much
more than the 4percent the utility would get if Nersa granted it a CPI increase in the next two years.

“As a result, Eskom would struggle to convince lenders that they would get their money back,” he said.

According to a methodology that Nersa uses to evaluate tariff applications, Eskom can, after financial year-end, submit an RCA application based on audited financial statements. The RCA is a regulatory
mechanism that reconciles the variance between projected and actual revenue and
certain costs.

“I understand their concerns where, if you put a significant adjustment in the RCAs over a short period, it becomes unaffordable. Eskom’s proposal is that, you can phase in the RCAs over a number of years,” said Cassim.